Who Joined the Pigou Club? A Postmortem Analysis of Washington State’s Carbon Tax Initiative I-732

Abstract

I document voting behavior in Washington State's revenue-neutral carbon tax referendum of November 2016. The initiative (I-732) would have taxed carbon emissions from fossil fuels while simultaneously lowering the retail sales tax and certain manufacturing taxes and matching the federal Earned Income Tax Credit. Voters rejected I-732 with 41% voting for and 59% against. Precinct-level vote shares imply two-thirds support among Democratic voters and near-zero support among Republican voters, and the partisan vote alone explains 87% of the variation across precincts. Yet party is not everything, as incidence, identity, information, and ideology are all correlated with support for I-732. Support is weaker in precincts with larger shares of car commuters, bigger homes, and workers in carbon-intensive industries and stronger in precincts with larger shares of young people, racial and ethnic minorities, college-educated adults, and voters that are ideologically aligned with the left's broader policy agenda. Out-of-sample forecasts imply that no other state would have passed I-732. Polling data suggest that framing the policy in terms of "fighting climate change" likely gained many Democrats but lost many Republicans. Less clear is the role played by elites: while many elected officials in the Democratic party supported I-732, the state Democratic party and leading environmental groups were all opposed. Overall, these results highlight a strategic fork in the road for politically feasible climate regulation: attract moderates through a revenue-neutral carbon tax, or veer left by directing tax revenue to projects that Democrats like.

Determinants of the Cost of Electricity Supply in India

Abstract

Electricity consumption and economic development are strongly correlated, meaning that cost-effective electricity supply is particularly important in developing countries. In this paper, we quantify the total cost of electricity supply in India. We assemble a novel dataset on daily production from each utility-scale power plant in the country and administrative measures of plant-specific marginal operating costs, and calculate the total variable costs of electricity generation in India to be approximately $29 billion per year. We next construct the "least-cost'' counterfactual where we dispatch power plants in order of lowest-to-highest marginal cost. We find that this least-cost dispatch results in total annual operating costs that are roughly $4.7 billion lower than observed dispatch. Even after accounting for interregional transmission constraints, we find that over 80 percent of the cost difference between observed and least-cost dispatch remains.

Siting Solar PV Capacity to Maximize Environmental Benefits

Abstract

The environmental benefits of solar electricity generating capacity vary across the U.S.
according to solar irradiance, weather, conventional generation fleets, grid characteristics, and
population. Though the 1.1 million distributed solar generation systems installed in the U.S are
incentivized by local, state and federal programs, virtually none of these varies subsidies
according to expected environmental benefits, which, to our knowledge, have not previously
been estimated in a systematic and theoretically consistent way. This paper, therefore,
develops such a measure of the spatially-differentiated environmental benefits of solar capacity
across the U.S. by modeling solar generation potential from high-resolution irradiance data and
by estimating the hourly pollution emissions of the marginal power plant in each electricity
planning area. We relate the estimated values of avoided pollution emissions at the zip code
level to estimates of the value of state and federal solar incentives. Finally, we estimate the
total environmental benefits generated by installed rooftop solar capacity in the U.S. and
compare the magnitude of these benefits to those that would be generated by solar capacity
sited to maximize environmental benefits under various constraints, including grid stability
constraints.

The environmental benefit generated by the typical 4 kilowatt rooftop solar PV system in the
U.S. is equal to $6,200 over its lifetime, though these benefits vary considerably across the U.S.
and even within states. Federal and state incentives subsidize the typical system in excess of
these benefits by $5,400. Yet, in 25% of zip codes, rooftop solar is under-subsidized by as much
as $6,200. The magnitude of foregone environmental benefits due to suboptimal siting of solar
capacity is estimated at as much as $1.2 billion annually. The foregone environmental benefits
are attributable chiefly to the inability of capacity in the high-irradiance West to displace
relatively dirty fossil generation in the East because of transmission constraints.

Do Carbon Taxes Kill Jobs? New Heterogeneous Evidence from British Columbia

Abstract

This paper estimates the effects of the British Columbia (BC) revenue-neutral carbon tax on the BC
economy. As other jurisdictions world-wide are considering regulating carbon, BC is considered a
potential “role model”. On July 1st, 2008 BC became the first jurisdiction in North America to implement
such a tax. The policy is designed as a revenue neutral tax by lowering other provincial business and
(low) income taxes. While many economists favor the effects of the double dividend approach, in reality,
the political debates are fierce. Claims range from one extreme that this tax “kills jobs” to the opposite
claim, that the tax generates economic growth and spurs innovation.

Empirically estimating the economic impact of this policy, however, is challenging due to a number of
confounders. In particular, the BC carbon tax was implemented at a time of major macro-economic shifts.
First, the great recession and subsequent recovery occurred simultaneously with the introduction and
ramp-up of the carbon tax. Second, unlike other provinces in Canada, BC has been under special interest
by foreign investors in the past decade(s), accelerating both migration and the steep increase of property
values. Third, oil prices underwent drastic changes, especially during the time of our dataset from 2008 to
2016, and finally other jurisdictions also have been implementing other environmental and energy
policies. Cleary, due to these confounders, it is crucial how the counterfactual is defined.

This paper takes a fresh look at the data, and differs in methodology in several important ways from the
very small previous literature that mostly relies on simulation models, with the notable exception of
Yamazaki (forthcoming). As a consequence we also find (in part) very different results. We argue that
these changes in methodology are crucial to obtain estimates of the causal effect of the BC tax on
employment. Two main factors drive these different results.